Brownsfields financing tools transform downtown “Spudsville”
By Aaron Scheff
Spudsville is a thriving city of 250,000 that’s surrounded by smaller towns of varying size, which add another 200,000 people to the total population of the greater Spudsville valley. The city’s Standard Linen site was an eyesore in a neglected portion of downtown Spudsville. Recent downtown revitalization largely bypassed the six-block section of town around Standard Linen.
The Standard Linen site sat vacant for more than a decade after the business closed in the early 1990s. It did not take long for this property, about half a city block, to fall into disrepair and blight. Weeds grew out of the building’s base and cracks in the sidewalk, windows were broken or missing, and evidence of the occasional “temporary residence” could be seen in the corners of entryways and building overhangs. This portion of Spudsville was an area people drove past without paying much heed. No residences, restaurants or retail stores existed in this formerly thriving commercial district.
The closure of Standard Linen precipitated a mass exodus of commercial business from this area of downtown. Within 10 years, nearly half the commercial and office space in this area of Spudsville was vacant, with no prospects in sight. Although the Standard Linen site was large, had good infrastructure in place (including the potential for geothermal hook ups) and was centrally located, the property generated little interest from buyers.
The major hang-up seemed to be the concern over potential contamination from tetrachloroethene (PCE) and its degradation byproducts, namely vinyl chloride. These concerns were valid, considering the operational history of the site as an industrial laundry and the presence of a known PCE plume in downtown Spudsville with no identified source. Developers were reticent to purchase the property without an environmental assessment. They were even more reluctant to spend money assessing a site that could turn out to be contaminated with PCE.
Naturally, the site owners also were nervous about allowing environmental contractors on the property, fearing contamination might be found. The owners were understandably concerned that if PCE were detected at the Standard Linen, they would be held responsible for cleaning it up.
Concerned at the vacancy and blight surrounding the Standard Linen site, the Spudsville Public Urban Development Service (SPUDS) searched for a mechanism to assess, and, if necessary, clean up the site. SPUDS applied to the U.S. Environmental Protection Agency’s (EPA) Region 10 office for assistance in assessing the property through its Targeted Brownfield Assessment Program (TBA). EPA reviewed the TBA application and decided to conduct a Phase I Environmental Site Assessment (ESA) of the property. The TBA covered the $3,000 Phase I ESA.
EPA’s contractor conducted the Phase I assessment and identified some areas of concern. The property was surrounded by a PCE plume of unknown origin that had reached groundwater. In some cases, the concentration of PCE in groundwater exceeded EPA’s maximum contaminant level (MCL) for drinking water. Fortunately, no domestic wells existed in this area of Spudsville. All structures in this part of town were serviced by the city’s public water system.
The other concern raised by the Phase I ESA was the presence of at least two underground storage tanks (USTs) on the property. One tank (1,000-gallon capacity) was used to store diesel fuel for the Standard Linen delivery trucks. The other tank (500-gallon capacity) was used to store Stoddard Solvent and/or other unspecified chlorinated solvents for the removal of tough stains. The report concluded that enough evidence existed to support a perception of contamination at the property, even though no proof of actual contamination existed. Also, the report added to the speculation that the property may have been the source of the PCE spill.
SPUDS announced the availability of the Phase I ESA for the Standard Linen site and continued to market the property to potential buyers. However, developers still were disinterested in purchasing the property because of the projected assessment costs, not to mention potential cleanup costs. Undaunted, SPUDS met with the state’s Department of Environmental Quality (DEQ) to discuss funding options for a Phase II ESA for the property. DEQ agreed to conduct a $35,000 Phase II ESA through its contractor.
While DEQ was developing the assessment plan with its contractor, the owner of Insight Development met with SPUDS to discuss his plan for a mixed-use, urban development in downtown Spudsville. Insight was interested in creating an urban development for folks who wanted to work, live and recreate in the downtown area. Insight needed the right space in a relatively affordable part of downtown. SPUDS showed Insight the Standard Linen property and surrounding area. Insight was intrigued. After reviewing the Phase I ESA, Insight met with the Standard Linen owners and worked out an agreement to purchase the property. Part of the agreement was an extended due diligence period; Insight wanted to review the results of the DEQ-funded ESA before purchasing the property.
Upon completion of the Phase II ESA, DEQ forwarded a copy of the final report to SPUDS, which in turn shared it with Insight. The report contained some key pieces of information. First of all, through the installation and sampling of groundwater monitoring wells, DEQ’s contractor determined the Standard Linen property was not the source of the downtown PCE plume. Groundwater entering the site had higher concentrations of PCE than it did as it exited this site, indicating an upgradient source of PCE. Also, the concentrations of PCE entering and leaving the site were below the MCL for PCE, which was good news for the site owners, Insight and DEQ.
Unfortunately, soil contaminated with diesel fuel was detected in the vicinity of the two USTs. DEQ’s contractor used the Risk Analysis Model (RAM) to determine if the soils needed to be cleaned up. In the past, detection of any amount of petroleum of diesel fuel would have triggered cleanup until soil concentrations met State Regulatory Requirements (SRRs). However, DEQ switched to a risk-based approach to cleanup based on site use (industrial, commercial, residential), completion of exposure pathways and other variables. In this case, the RAM indicated the soil contamination exceeded the allowable concentration levels even for an industrial land use, let alone Insight’s planned mixed-use. DEQ concurred with the results of the Phase II and the conclusion that the site soils required cleanup.
Due to the results of the assessment and the projected cost of the cleanup, Insight was inclined to walk away from the deal. DEQ’s Voluntary Cleanup Program (VCP) and Brownfield Response Program managers set up a meeting with Insight officials to discuss cleanup and funding options, should they decide to go through with the purchase of the Standard Linen site.
DEQ managers informed Insight officials that, if they purchased the property with the intent to clean up the contamination and redevelop the site as planned, they would likely qualify for a low- to no-cost loan from the State Brownfield Cleanup Revolving Loan Fund (BCRLF). DEQ also listed the tools available for Insight in their endeavor to clean up and redevelop the Standard Linen property. These tools included: the VCP; the BCRLF; a state income tax credit of 70 percent for approved cleanup costs; a federal income tax credit for approved cleanup costs; environmental insurance for cost over runs; a risk-based approach to cleanup; and institutional controls. Insight went through with the purchase with the intent to clean up and redevelop the Standard Linen property. The first step was to apply and be accepted to the VCP.
Because the site was fully assessed, Insight was eligible to apply to the VCP, which it did by filling out the application, submitting all appropriate site data and reuse plans, a $250 application fee and a $2,500 fee to cover DEQ costs associated with the technical review of Insight’s cleanup plan and eventual remediation activities. DEQ indicated a portion of the $2,500 could be refunded if DEQ personnel didn’t spend $2,500 worth of time overseeing the project.
Insight then hired an environmental consultant who developed a set of cleanup alternatives, along with associated cleanup goals and costs. After a mandatory 30-day public comment period, Insight, its consultants and DEQ worked collaboratively to choose an appropriate cleanup option. Insight then applied to the BCRLF for a $100,000 loan to cover the cost of cleanup, minus a 20 percent match ($20,000) from Insight.
Insight’s contractors began implementing the cleanup plan, which involved the removal of the two USTs. The USTs were removed, and evidence of corrosion and leakage from the diesel tank was noted. During the excavation of the contaminated soils in the former UST pit, an additional UST of unknown origin and content was discovered. This discovery brought the project to a halt. Insight’s contractor, through additional assessment work, determined the UST was a waste oil tank once used for heating. There were no records of this UST’s installation or operation, but pipes leading into the building’s foundation made it apparent the contents were likely used to heat a portion of the warehouse in the past. Staining around the tank indicated contamination extended under the building’s foundation.
After assessing the extent of heating oil contamination and considering cleanup options for removing the newly discovered UST and associated contamination, it was clear Insight would incur an additional $85,000 in cleanup costs, putting it over its BCRLF loan. Insight’s contractor completed a modified cleanup work plan and submitted it to DEQ. Once the plan was approved, Insight approached its insurance company for assurances that its policy would cover cleanup costs in excess of the original cost cap. The cost cap insurance policy, which cost Insight about $5,000 in premiums and $10,000 for its deductible, covered most of the cost overrun and the vast majority of the cleanup was completed.
Analytical results of confirmation soil samples collected by Insight’s consultant indicated petroleum-contaminated soils under the building’s foundation exceeded the state’s initial screening values. A subsequent RAM analysis showed contamination exceeded the allowable limit for residential exposure. Insight determined the cost of remediating the soils to residential standards was cost prohibitive; it needed another solution.
Insight’s original plan was to have office and retail space mixed with residential lofts and a small indoor parking garage under the building’s residential portion. Insight’s architects and environmental consultant and DEQ worked to devise a land-use plan to allow the same mix of elements, just rearranged around the soil contamination, which was to remain in place.
By repositioning the parking location and placing the office space above the parking garage and area of contamination, Insight was able to pass a RAM analysis without remediating the soils or putting future residents at risk. Insight agreed to a deed restriction, which prohibited the use of the area of contamination for residential purposes until soil and soil vapor contaminant concentrations met DEQ’s initial screening values. Insight also agreed to the installation of a permanent soil vapor point monitoring well in the area of contamination and a long-term monitoring schedule to track the natural breakdown of the heating oil contamination beneath the building’s foundation.
Insight received a certificate of completion from DEQ, a covenant not to sue and a statement of allowable cleanup costs (to be used for tax credit purposes), and began redeveloping Standard Linen. Insight utilized a number of green technologies while redeveloping the Standard Linen building, including tapping into a geothermal line that serviced a portion of downtown Spudsville, installing a green roof and developing a greywater system that collected the building’s storm water and grey water for use in flushing the building’s toilets. Insight quickly sold out the building’s residential lofts and signed leases for all its office and retail spaces before the redevelopment was even complete. This was due, in part, to the word-of-mouth generated by the project, the DEQ Brownfield Success Web site, aggressive marketing by SPUDS, local media and the construction activity on the site.
Recognizing the economic potential of this underutilized portion of Spudsville, Insight used its Standard Linen success to attract capital and purchased a number of the vacant properties around Standard Linen. Working with SPUDS and the Spudsville planning and zoning department, Insight was granted zoning variances and branded the six-block area around the Standard Linen building as “Standard Heights.” As it turns out, there was a strong demand for downtown residences and the Standard Heights area, primed for redevelopment, had enough affordable space to meet that need. Interest in locating retail shops, restaurants, offices and related services in the Standard Heights area picked up rapidly. Other developers saw the sudden success of Insight and began purchasing and redeveloping property to fit with the Standard Heights plan.
Insight was able to repay the loan to the BCRLF and enjoyed a 2 percent rebate on the interest for repaying it within a two-year period. Insight also received a state income tax credit for 70 percent of allowable cleanup costs (nearly $87,000), which it elected to spread out over a five-year period. Insight also was able to deduct its allowable cleanup costs from its federal income tax through a provision in the Taxpayer Relief Act.
The assessments provided by EPA and DEQ gave SPUDS and Insight the information they needed to determine whether or not to purchase the property. The tax incentives, combined with the interest rebate, the flexible terms of the BCRLF loan and the cost cap insurance, made the cleanup affordable for Insight. Without these tools Insight “would not have touched Standard Linen with a 10-foot pole.” Ultimately, the blight that started with the decline of Standard Linen was erased once Standard Linen was transformed into the flagship of Standard Heights, now the most desirable part of downtown Spudsville.
Aaron Scheff is a brownfields specialist for the Idaho state Department of Environmental Quality.
